Background
Australia has implemented new regulations to strengthen tax transparency for multinational companies. As of January 1, 2025, companies meeting determined criteria will be subject to filing a “Local Report” in abbreviated format as part of their Transfer Pricing documentation obligations. These amendments follow the OECD’s recommendations on Base Erosion and Profit Shifting (BEPS) to improve the oversight of corporate tax practices.
Herein, we will address the new requirements, the information companies must disclose, and the proceedings to be followed to comply with the Australian Taxation Office’s (ATO) regulations.
What Is BEPS and Why Is It Important?
BEPS refers to tax planning strategies employed by multinationals to shift profits to low or no-tax jurisdictions, thereby reducing their overall tax burden. The OECD has led an initiative against these practices by developing a transparency and compliance framework that countries are progressively implementing.
In Australia, the ATO has adopted tougher measures to ensure that companies pay tax fairly, preventing tax avoidance by shifting profits to other jurisdictions.
New Reporting Obligations in Australia
The most significant amendment is introducing the abbreviated format for the ‘local report’ in Transfer Pricing documentation. This requirement will affect multinational enterprises operating in Australia that meet the Country-by-Country Report criteria. Generally, any entity subject to these obligations must complete, at a minimum, the abbreviated local report if it exceeds the financial thresholds set by the ATO and engages in cross-border related party transactions.
Information to Be Included in the Abbreviated Local Report
Affected companies must file detailed information on the following:
1. Principal business lines and functions
This section requires identifying the number of business lines, functions, and the company’s main competitors. The business lines and functions reported in the local report should be broadly consistent with the reporting procedures of their annual report or other management documents or reports.
2. Organizational structure
Information on organizational structure and accountability to staff abroad is necessary. In this section, there is an initial query as to whether any local staff are accountable to overseas staff (accountability is not further defined).
3. Restructuring and intangible agreements
This section should primarily include information about transfers of intangible assets, including patents, trademarks, software, and modifications to licensing and intellectual property development agreements, among others.
These requirements aim to provide greater transparency on how multinationals structure their operations and distribute their profits.
Non-compliance Penalties
Failure to comply with these new regulations may result in significant penalties imposed by the ATO, including:
- Financial penalties: Companies failing to file local reports in the required format or with inaccurate information can face substantial fines.
- Increased monitoring and audits: The ATO may intensify scrutiny of non-compliant companies, which may result in detailed audits and an increased administrative burden.
- Reputational damage: Non-compliant companies may face a negative impact on their corporate reputation and their relationship with investors and business partners.
Given the potential non-compliance effects, companies must have a proactive approach to ensure compliance with these new regulations.
Additional Considerations
In addition to penalties, there are other key issues for companies to consider:
- Anticipatory review of tax policies: Assessing whether current tax strategies are compliant with the new regulations and adjusting if necessary.
- Collaboration with tax advisors: Experienced Transfer Pricing advice to ensure proper compliance.
- Reporting automation: Implementing technology solutions to facilitate the gathering and reporting of information required by the ATO.
Conclusion
The new BEPS regulations in Australia strengthen tax transparency and tax compliance. As of 2025, multinationals must file the local report in an abbreviated format with key information on their transactions.
In order to avoid penalties, companies should prepare onwards by reviewing their documentation, adjusting Transfer Pricing policies, and training their staff. Consulting the ATO guidelines and seeking professional advice will ensure compliance.
Call to Action
At TPC Group, Transfer Pricing specialists, we offer advice on understanding and adapting to regulatory amendments, ensuring compliance, and optimizing your tax strategy.